AAT overturns Customs tariff decision based on rules of interpretation

The recent AAT decision in Sawtell makes it clear that the Customs Tariff Act 1995 (Cth) (Tariff) must be interpreted according to the rules of statutory interpretation as well as the rules of interpretation in Schedule 2 of the Tariff.

This requires consideration of the ‘text’ and ‘context’ of the provisions of the Tariff. As the decision shows, failure to consider context can result in errors in tariff classification.

What happened in Sawtell?

In Sawtell Nominees Pty Ltd t/a H & R Schwarz and Comptroller-General of Customs [2016] AATA 993, the AAT set aside the decision of Customs and instead substituted its own determination.

The product in question was used to suppress the growth of bacteria and other pathogens in certain foods – mainly pre-packaged cold meats.

Sawtell originally classified the product as a lactic acid before changing that classification to heading 3824, which included ‘chemical products or preparations… not elsewhere specified or included’. Item 3824.90.10 included a description of ‘food preservatives’.

Customs classified the product as a disinfectant under heading 3808, both at first instance, and then on review.

Sawtell paid duty under protest and sought a review of the decision by the AAT.

In reaching its decision, the AAT relied on statements made by the manufacturer of the product and by microbiologists, food scientists and biochemists. The AAT did not rely on the opinions of the sales specialist of the product.

The AAT concluded that Customs’ classification of the goods under heading 3808 was incorrect and classified the goods to item 3824.90.10.

Why did Customs get it wrong?

The AAT noted that the context in which a word appears in the Tariff must be considered. The AAT applied the decision of Young J in Chief Executive Officer of Customs v Biocontrol Ltd (2006) 150 FCR 64. In Biocontrol, Young J overturned a decision of the AAT, noting that there was a failure to take into account particular ‘contextual indications’.

The AAT in Sawtell held that the product in question was not a disinfectant. Customs had relied on dictionary definitions, which resulted in a narrow approach that did not sufficiently consider the context in which the word was used.

The AAT stated that the alternative heading of 3824, which applied where a product was ‘not elsewhere specified or included’, was relevant context that pointed strongly to Customs’ classification being incorrect.

While the AAT acknowledged that headings must be compared first, and that it could not rely on descriptions of items under headings before the headings themselves were compared, the description of food preservative in item 3824.90.10 was relevant context. This was particularly the case where the heading was for products ‘not elsewhere specified or included’.

The outcome in Sawtell is consistent with the High Court case of Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41, where the High Court stated that statutory words are to be interpreted having regard to their context.

There is clearly a place for dictionary definitions to help identify the ordinary meaning of a word, but care needs to be taken to consider the text of words as well as their context in the Tariff.